Morgan Stanley Drops Its 2009 Pay Load

January 20, 2010

With Wall Street bonuses in the spotlight, Morgan Stanley seems to have modestly cut back on pay to bankers and traders.

The firm said Wednesday, January 20, that compensation costs to these employees ate up 40 percent of the firm’s revenue for 2009. That’s down from the 50 percent level that Morgan Stanley and other investment banking firms have traditionally shelled out. It isn’t clear how much the firm paid per employee since it declines to disclose how many bankers or traders it has.

Although pay declined as a percentage of revenue, it marched higher as measured by dollars spent. Total compensation costs rose by more than $3 billion, to $14.4 billion, reflecting a workforce that grew by 36 percent last year due largely to Morgan Stanley’s acquisition of brokerage Smith Barney from Citigroup. The rising compensation costs come as the firm continues to try to regain its footing from 2008’s near-death experience.

Fourth-quarter profits of $617 million were lower than consensus expectation, and for 2009 the firm suffered its second straight unprofitable year, posting a loss attributable to shareholders of $907 million. Morgan Stanley disclosed that an accounting quirk caused it to reduce revenue by $5.5 billion as the value of its long-term debt rose.

Asked on a conference call if the decline in the firm’s compensation ratio was an aberration, Colm Kelleher, co-president of the firm’s institutional securities division, said, “Compensation generally will come down in the industry.”

Chief executive James Gorman, who took the reins from John Mack at the start of the month, added that bidding wars for top-shelf stockbrokers are also easing and said he expects that state of affairs to last for several years. The average broker in Morgan Stanley’s wealth management received $337,000 in compensation last year, down from $448,000 in 2008, due in part to customers yanking about $5 billion in assets from the firm.